CA Intermediate · Financial Management and Strategic Management · Financing of Working Capital
Which of the following is a feature of commercial paper (CP) in India as a source of short-term working capital finance?
Commercial paper is an unsecured money market instrument issued at a discount to face value and redeemed at par. It is issued by creditworthy companies for short maturities of up to one year, so it is neither secured nor restricted to banks.
- AIt is a secured instrument backed by the issuer's current assets
- BIt is an unsecured money market instrument issued at a discount to face valueCorrect
- CIt can be issued only by commercial banks
- DIt carries a fixed maturity of exactly five years
Explanation
Commercial paper is an unsecured, negotiable money market promissory note issued at a discount and redeemed at face value, with short maturity (7 days to 1 year). It is issued by creditworthy corporates, not only banks, and it is not secured.
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